How financial literacy programs control student debt

A spooky cloud of crimson smoke dramatizes the dread of overwhelming student debt in “The Red,” a short movie thriller created for SALT, the American Student Assistance financial literacy program for students and alumni.

Less dramatic but noteworthy still, college students logging onto the National Endowment for Financial Education’s CashCourse can take a “Financial Realities” quiz to test their knowledge. In the opening question, they’re asked what will have the worst impact on their finances: gourmet coffee drinks, borrowing money, or spending without a plan.

Teaching students why the third option is the correct answer is a common goal of college financial literacy programs. While these programs stress that borrowing to get a college degree can be a wise investment that pays off big in lifetime earnings, one of their other top aims is reducing the student loan default rate.

Many higher ed leaders are realizing that the best way to wrangle runaway student loan debt is to make sure students master the basics of money management. Their institutions have implemented comprehensive financial literacy programs that encompass not just managing loans and paying for college but also topics like budgets, credit cards, 401(k)s, and payroll taxes.

To some degree, institutions are rolling out these programs by necessity. The Higher Education Act of 1965 requires colleges to provide entrance and exit counseling to students receiving federal loans, to review such information as the terms of the loan and repayment plans.

Some institutions also offer general debt management advice in those counseling sessions, as financial aid and college planning author Mark Kantrowitz notes on his website FinAid.org. And some financial literacy advocates would like to see a stronger push from the federal government.

“We at ASA are in favor of using the upcoming reauthorization of the Higher Education Act to encourage financial education counseling to student borrowers through financial aid offices, employers or nonprofits,” says Allesandra Lanza, director of corporate public relations for American Student Assistance.

Here’s how financial literacy efforts have evolved on campuses and how the content of these programs is helping students to wisely manage their debt—and in turn helping to keep default rates down.

Programming is prevalent

Back in 2004, Sharon Cabeen, now financial literacy program director for TG, was just entering the college financial aid consulting business. That year she attended a conference of financial aid directors and asked a room of about 100 attendees how many believed it was their job to teach students about money management. Fewer than 10 people raised their hands.

“Two years later, in the same kind of situation, about 90 percent of the room raised their hand,” Cabeen says. “So it has really grown since the early 2000s. Numerous kinds of groups have tried to assist the higher education community in implementing financial literacy, but the schools are finally adopting it.”

NEFE was one of the first U.S. organizations to develop a financial literacy curriculum for college students, launching its CashCourse program in 2007.

“Each year we’ve seen a huge growth of interest in personal finance ... and teaching students how to manage their money, not only while they’re in school but also preparing them for after school,” says Amy Hartenstine, NEFE’s CashCourse program director. She anticipates that many colleges and universities will not only launch similar programs, but more institutions will form specific departments or centers focusing on student money management.

Cindy Morris, senior default conversion consultant at TG, says financial literacy has become a key component in the default management plans at many colleges and universities.

“Default prevention is kind of a new idea for schools,” Morris says. “It’s just within the last few years that schools have been thinking about default prevention as part of their responsibility. ... At a bare minimum, students get entrance and exit counseling when they borrow money.”

Lessons learned, early and often

The University of Texas-Pan American, which started its financial literacy program in 2009, has used various iterations of the TG curriculum. Initially student financial services staff members made presentations using TG materials to the university’s freshman Learning Framework classes.

When a staff restructuring in 2011 made that method of covering the curriculum’s 50 course sections unfeasible, professors teaching Learning Frameworks started accessing information from TG’s online Learning Center and distributing it to their students.

“Some professors did it; others didn’t,” Garcia says. “We didn’t get as many users as we would have liked.”

Also reaching students early on, and often, is Syracuse University in New York through a comprehensive financial literacy program dubbed “I Otto Know This!” Named for the university’s mascot, Otto the Orange, the program has components geared toward both undergrads and graduate students.

Administrators first integrated financial literacy into the university’s Money Awareness Program (MAP) in the spring of 2009. Through MAP, eligible students can have their private student loan balances reduced or replaced with Syracuse University grant money.

“In exchange, the students have to attend one financial literacy session per semester until they graduate,” says Rebecca Rose, assistant director of the office of financial aid at Syracuse.

Because of the positive student response to those sessions, Syracuse administrators expanded the financial literacy program to the entire campus, with participation voluntary for most. Like MAP students, recipients of federal TEACH grants—which help reduce student borrowing for teacher education and related disciplines—also are required to take financial literacy.

In addition, students can go online to access the self-directed Life Skills modular curriculum from USA Funds. According to Rose, more than 6,000 Syracuse students have completed at least one module since June 2010.

California State University, Bakersfield has a financial literacy web page, hosted by iGrad, that has been incorporated into its student orientation and first-year core curriculum. The page has been promoted in everything from the university’s general website to direct emails to an electronic monitor in the lobby of the administration building, says Ron Radney, director of financial aid and scholarships.

“Student feedback has been very positive, which will hopefully translate into assisting students in making sound financial decisions in the future,” Radney says.

University officials also hope the program will help increase retention and graduation rates, thus “fostering future alumni contributors and lowering our default rate,” he adds.

At San Jacinto College, a Texas community college system with three campuses in and around Houston, financial literacy education is mandatory for all students who are appealing the loss of federal financial aid due to academic ineligibility, says Elena Olivier, the default prevention coordinator.

Part of the college’s default prevention plan, the program has been in place three years. It consists of graded online courses from USA Funds’ Life Skills program and face-to-face lessons that Olivier conducts herself. In addition to the Life Skills content, Olivier uses PowerPoint presentations from TG.

While the students often gripe about being forced to take the courses, once they get exposed to information that boosts their money management know-how, they “are like sponges,” Olivier says. Many return to take additional sessions.

Also an adjunct professor of business at the college, Olivier incorporates financial literacy into all of her classes, from business English to computer skills. Several other San Jacinto business professors have followed suit, she says.

“When you asked the schools what they thought students wanted to know, saving for the future was one of the lowest topics on the list,” Wilson says.

Further analysis revealed that administrators thought students wouldn’t be interested in information not pertaining to their immediate concerns. But talking to student groups showed that wasn’t the case. They actually were interested in understanding more about things like saving money and investing in 401(k)s, Wilson says.

Many college students don’t know what they don’t know about money, experts say, and they can benefit greatly from the direction and focus that a formal financial literacy curriculum provides.

“They know they need help, but they can’t articulate the exact need,” says Alisa Wilke, director of product development at ASA. “They really want someone to hold their hand and give them the next steps.”